Multi-assetOct 24 2014

Veteran manager Yarrow stirred by ‘perfect storm’

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Ramped-up levels of market volatility have created opportunities for multi-asset manager Tony Yarrow to increase his usually “negligible” turnover levels.

The manager of the £52.8m TB Wise Income fund said his turnover of holdings is extremely low, but the difficult conditions in markets of late had created a “perfect storm” that had thrown up some new investment ideas.

The FTSE 100 index has fallen 6.2 per cent year to date, having risen more than 10.5 per cent last year. The falls have largely been concentrated in September, when markets dropped 2.9 per cent, and October, which so far has seen a 4.9 per cent fall.

Mr Yarrow said he now expected his turnover to be 20 per cent for the year – higher than usual.

“The markets are creating the perfect storm,” he said.

“I think of my investment opportunity set as a desert island and the island is getting bigger as markets shift. I’m beginning to move out of some of my defensive positions and looking to new opportunities.”

At the end of September, the manager had 9.5 per cent of his portfolio in cash and was looking to invest this – as well as proceeds from holdings that had performed well – into new ideas.

One of the defensive positions Mr Yarrow has been reducing is the Standard Life Property Income Trust, which is one of his top 10 holdings, making up 4.2 per cent of the portfolio at the end of September. The investment trust, run by Jason Baggaley, recently scooped a win in the Investment Adviser 100 Club’s Property category award.

One area of the market that Mr Yarrow is eyeing is UK smaller company funds and investment trusts. Funds in the sector have had a strong run but have been selling off recently, given the drop in markets. The FTSE 250 index has lost 5.7 per cent in the past six months, while the FTSE 100 has dropped nearly 3.7 per cent, according to data from FE Analytics.

Not only that, but the IMA UK Smaller Companies sector has had four consecutive months of outflows from May to August of this year, according to the trade body.

One fund in particular Mr Yarrow has been considering is the Montanaro UK Equity Income fund. Montanaro is a smaller company boutique and the fund has no fees until it hits £100m assets under management. At the end of September, it was £61m in size.

Mr Yarrow, who invests in third-party funds and investment trusts as well as direct equities and fixed income securities, has significantly outperformed his peer group average.

His Wise Income fund has delivered 73.2 per cent since launch, compared to the IMA Flexible Investment sector average return of 52.9 per cent, according to the fund’s factsheet.

Mr Yarrow founded Wise Investment in 1992 to provide investment advice and fund management to private clients. He started managing funds in 1988 and ran the Wise Investment Clients’ fund from inception in 1992 until the fund was subsumed by TB Wise Investment at its launch in 2004.

Has mining hit rock bottom?

The mining sector has caught the eye of several managers lately, among them Tony Yarrow.

“Following the sharp slowdown in the Chinese economy, a world glut of commodities has arisen and prices have collapsed across the board,” he said.

“We are now at or very near the low point in the commodity cycle, and we expect to add to holdings in this area on weakness.”

The FTSE World Mining index has fallen by 6.8 per cent year to date – more than the FTSE 100’s 4.4 per cent fall, according to data from FE Analytics. Mr Yarrow thinks the sector has had a “final despairing flick of the tail”.

Shares in the BlackRock’s World Mining Trust have fallen 17.8 per cent so far in 2014, largely because of a hefty writedown in its investment in the London Mining Marampa contract, but Mr Yarrow said he was considering topping up his top 10 holding.

“There isn’t another fund like this one and the only other way to get exposure to the miners is to buy them directly,” he said.